SaaS Series: Problem-Value Fit

Photo by Jonny Gios on Unsplash

Notes from discovering problem value fit by Prasanna K of Upekkha in Accel seed to scale

When you borrow 1$ to build a printing machine which prints 1$ who does that machine belong to? When you borrow 1$ to build a printing machine which prints $10 who does that machine belong to? Which ones do show our skills as an entrepreneur? If we are able to build a business that makes money, its good for all the stakeholders

Product market fit is broken down into problem value fit as this is an area where people makes maximum mistakes

Why do startups fail?

1. No Market Need
2. Ran out of Cash
3. Not the right team
4. Get outcompeted
5. Pricing/Cost issues
6. User un-friendly product
7. Product without a business model
8. Poor Marketing
9. Ignore customers

Start-up is a marathon with multiple innings. we have to learn how to become a Ferrari or Tesla.

How does it feel to have a product-market fit, many tells that it is like rolling a boulder down the hill after the product-market fit.

If you can earn more than $1 ARR for every $1 invested then the employees or founder owns more equity. We will have to strive to achieve this.

The story of what kind of start-up we want to build changes from person to person. There are three types of entrepreneurs

1. Surfer: Looking for a wave and wants to look good riding the wave. So they are looking for the next big wave. Examples company would be recharge, wallets, payment banks, UPI, e-commerce, etc.
2. Voyager: A person who is the cook on a ship exploring a treasure island. The cook goes to treasure island and comes back. Then he goes to someone and claims that he knows where the treasure island is and he can take you there. He raises money and sets off and 7 years later comes back with treasure. Flipkart, Freshdesk, etc are examples
3. Fisherman: Wakes up at 4 am, catches fish, and does it every day and for years and years. After 20 years he is a rich man. Examples are Snapdeal, Zoho etc are examples where there are recurring revenue

You can be any of the above but understand the needs of each types requirement. If you are a fisherman, don't try to ride a surfer wave.

Socratic Approach to PMF

Break product-market fit into 4 pieces and the below questions will help to identify the fit ( Founder market fit, problem value fit, product solution fit, market scale fit )

Founder market fit: What's my strong POV (Point of view), Who should I be hiring for this market? Can I do it alone: Do I need a co-founder? The earlier founder is a generalist who needs storytelling, team building, decision making, and self-esteem. The founder also should be good in strategy, marketing, product management, and sales. The founder should be able to manage alone till he/she gets to 2 to 3mn dollar revenue

Write down the following

1. What skills are needed to succeed in the chosen market
2. What credibility do you have in this market
3. What unique point of view do you bring to this space
4. Can you hire people to win this market? What softer attributes of the market does your team match with?

Rank yourself on a scale of 1 to 10 ( 10 is the highest). Share the answer with the co-founder or team and challenge if an answer doesn't make sense

Problem value fit: Problem domain has many possibilities but not in the solution domain. Find the right problem to solve. Once we find the right problem, we will have many solutions to solve this problem. Move your mind from the solution to the problem domain

Below are ICP template

1. Title ( Role of the person in the company)
2. Jobs to be done: Functional needs (Top 3), Social needs (Top 3). Emotional needs ( Top 3)
3. Early adopters characteristics: There are very few early adopters in the Indian context. Indians are not very early adopters.

Hierarchy of B2B needs

1. Regulation & Compliance
2. Revenue & Revenue growth
3. Profit & Profit Growth
4. Productivity ( workflow)
5. Future growth (Innovation)
6. Brand

Problem = JTBD (Job to be done) + Friction

1. What is the customer persona?
2. What is the cost of not having the solution?
3. What kind of product do we have to build to solve this

The problem hierarchy could be very different. The emotion triggered by the presence of the problem could be different

Exercise :

1. Who is your customer persona
2. What is the problem being solved? ( Vitamin or pain killers)
3. Break down the different users/personas that it impacts: Map it to the org, who is the decision-maker who has the problem?
4. Quantify the economic surplus created by solving this problem: If you’re improving their bottom line or if you are improving individual productivity, can you quantify that in $ or hours?
5. Where is this problem in their priority list in their organization? Where is the problem in their hierarchy of needs?

Product solution fit :

How soon can you deliver a magic moment?

Most of us are stuck at the feature level.

1. Feature: Resides in the product
2. Benefits: Resides in the mind of product designer
3. Value: Resides in the mind of the product user

Questions for product solution fit. Write down answers

1. What is the benefit/ROI to the customer? Did the customer get the ROI you promised?
2. How many users do you need on board to deliver the value? What % of the customer org should adopt it?
3. Do you have a strategy/plan/checklist to get everyone on board to unlock the value?
4. What % of users on your product got the expected ROI?
5. What is the time to deliver the wow? : within the very first session of the user? Within the customer success activity? do you need a (paid) pilot?
6. How long does it take to deliver the entire value after the sale? What does it take on your side and the customer side? Was delivering the value under your control during the process?
7. What kind of integrations are required to deliver the value? What integrations are required to showcase the ROI/value delivered
8. Are users giving you referrals that talk about the exact value delivered? What's your NPS (a lead indicator of solution value )? What % of your new customers come through referrals? ( lag indicator)

Make sure they know the problem is solved and therefore they talk about you to get more customers.

Market scale fit :

Are there enough customers who have the problem, identify this.

You cannot sell to an enterprise without a sales cost of some sort. So when you sell to an enterprise make sure that it’s at least worth a million dollars for the enterprise, so we will get at least 100,000 dollars from them. So even if the sales cost is 30000 dollars, you are still making some good money.

If you are selling to small and medium enterprises, then make it tangible for them, then they will blindly pay for the solution. In early journey charge less, so that we get referrals.

Questions :

1. How many customers are there that have a similar set of problems?Is there something unique with early customers? Is this a new market? Who else sells to these customers?
2. How cohesive si this market? Geo, online community
3. Do referrals work?
4. Is there another unified channel? Is there a network effect? What is the CAC? Does the CAC go down with scale?
5. What is the back of the envelope calculation of TAM? Is it at least $10m?

Write answers to the above questions and brainstorm with your co-founders or team.

Redefine the problem value and refine ICP. Reiterate this again and again until you are satisfied.